How audiobooks allowed the Allo store chain to evade paying 57 million hryvnia in taxes

“Support your native word - listen to audiobooks in Ukrainian!” the Allo chain of stores offers customers. The initiative is great, but the devil, as always, is in the details, namely in the Tax Code.

At the beginning of December 2023, the Bureau of Economic Security exposed a chain of household appliance stores for evading the payment of more than 57 million hryvnia in taxes.

The scheme consists of artificially lowering the value of a taxable product while simultaneously adding tax-exempt services to the receipt.

The buyer sees the final amount exactly the same as on the price tag, but on the receipt the cost of his conventional electric kettle is for some reason divided into two parts.

This division of the cost of goods is not erroneous; it has a simple explanation - tax evasion. To help you understand, the BEB provides an illustrative diagram of how the tax burden is minimized. There is a vacuum cleaner worth 15 thousand hryvnia in the store window. When purchasing this product, the buyer receives a receipt with the same price, but it states: vacuum cleaner - 8,000 hryvnia and a set of audiobooks - 7,000 hryvnia. So, the amount of 8,000 hryvnia will be subject to 20% VAT, but audiobooks will not. Therefore, the store deliberately underestimated the cost of the main product in order to reduce the amount of taxes.

Article 197 of the Tax Code of Ukraine describes goods and services that are not subject to taxation. Subclause 1.25 notes that tax exemption applies to “supply, preparation (literary, scientific and technical editing, proofreading, etc.), production, distribution of audiobooks voiced in the Ukrainian language, except for publications of an erotic nature. The norms of this subclause also apply to electronic services for the supply of electronic copies (electronic digital information) and/or provision of access to audiobooks voiced in Ukrainian, except for publications of an erotic nature.”

According to the publication Censor.net, the Bureau of Economic Security exposed the Allo store chain for evading the payment of more than 57 million hryvnia in taxes.

To minimize the amount of taxes, the network uses precisely clause 197.1.25 of the Tax Code, which deals with audiobooks. In Allo stores there is a service “access to an online library”, the conditions for obtaining which indicate the following: “By purchasing promotional goods in Allo stores or on the allo.ua website, you will get access to the Allo online library of audiobooks.” The more purchases, the more books will be available to you. The larger the check, the more books and the longer the period of access to them.”

However, these conditions in no way indicate how much the service of accessing the Allo online library costs, and this is what opens a “window of opportunity” for the seller, so to speak.

It is worth adding that the buyer is often not even aware that he has gained access to audiobooks, because he is not informed about this. Simply, the amount of his vacuum cleaner in the fiscal receipt is divided into two positions, one of which is not subject to taxation.

At the end of December 2023, the Tax Service became involved in BEB’s claims to expose tax evasion schemes. The three largest retail chains were fined 83 million hryvnia. Of these, Allo stores had to pay the largest amount – 60 million hryvnia.

Journalists analyzed the court registry and came to the conclusion that even after the BEB orders and a fine from the Tax Service, the Allo chain of stores did not stop taking advantage of the loophole of the Tax Code, writing tax-exempt audiobooks into checks.

Thus, since January 2024, several similar cases were pending in the courts, based on test purchases by state inspectors of the Tax Service.

In the decision dated April 12, 2024, adopted by the Voznesensky City District Court of the Nikolaev region, the following is noted: “...during the inspection (which was carried out in the Allo store in the city of Voznesensk, Nikolaev region - Ed.) it was established that during the sale of the Xiaomi Redmi tablet Pad3 at a price of 7189.00 UAH and the Armor Standard Smart Case at a price of 309.00 UAH, were offered for sale by the seller Allo LLC at a total price of 7498.00 UAH. At the same time, according to the issued fiscal receipt... the settlement transaction was carried out for an incomplete amount of the cost of the goods, namely: the seller deliberately reduced the cost of the goods by the amount of 1340.00 UAH and amounted to 6158.00 UAH. through the sale of imaginary services “Providing access to the Hello library” in the amount of UAH 1,340.00.”

Tax representatives add that during the inspections, similar facts were established of the sale of goods for an incomplete amount of their value. The total amount of goods sold with violations is UAH 6,040,343.5. Of which, in October 2023 – UAH 1,276,965.70, in November 2023 – UAH 1,744,718.50, in December – UAH 2,488,827.30, and from January 1, 2024 to the end of the inspection – UAH 529,832.00 .

A similar situation was recorded during an audit by a tax inspector in Kyiv. “During the inspection, systemic facts of sales of Allo LLC goods in the store at the address: Kiev, Svyatoshinsky district, st. Berkovetskaya, house. 6D... not for the full amount of the cost... The specified violation is as follows: the seller offers the goods for sale at the price indicated in the price tag, however, during the recording of its sales by Allo LLC, the settlement transaction... was not carried out for the full amount of the cost of the goods, namely LLC " Hello" the cost of goods is deliberately underestimated by the amount of the cost of services (access to sets of electronic copies of audio books voiced in Ukrainian, provision of access to the "Hello" library); the total amount of sales of goods and services in the fiscal receipt corresponds to the price of the goods indicated on the price tag. According to information available on the Internet and the results of preliminary factual checks of Allo LLC, it is clear that services for providing access to the Allo library were not ordered, they were included in fiscal receipts without prior agreement with the buyer,” notes case materials 759/6438 /24.

Additionally, tax officials state that during the audit, facts were established that such settlement transactions were carried out for an incomplete amount of the cost of goods from June 2023 to January 2024 for a total amount of UAH 42,093,235.70.

In accordance with the protocol on administrative offense No. 249 dated January 26, 2024, the Chief Tax Inspector of the Ivano-Frankivsk region discovered similar facts of artificial entry into the receipt of access to audiobooks. During the test purchase, the inspector purchased a Xiaomi mobile 4G router. In the fiscal receipt, he saw that the cost of the router was 1,469 UAH, plus the additionally indicated provision of access to the Hello library at a price of 230 UAH. The total amount to be paid was 1699 UAH, which was originally indicated on the price tag.

These are just a few recent examples from the court registry of how a popular chain of stores is trying to “heat up” the state for millions in unpaid taxes.

On January 10, 2024, people's deputy Yaroslav Zheleznyak, who, in fact, was the initiator of adding audiobooks to the list of tax-exempt goods, published a fresh receipt from the Kharkov store of the Allo chain. In it you can see the familiar column “access to the Allo online library” next to the protective glass, which was obviously the main purchase. “Well, it turns out that some household appliance chains decided this year to continue the shameful practice of understating taxes on goods sold due to the type of book sales and other similar stories... Ok, challenge accepted,” the deputy commented.

In fact, the idea of ​​tax-exempt audiobooks in Ukrainian was intended to popularize literature and encourage Ukrainians to become more interested in books in their native language. The way this good idea was desecrated by retail chains to minimize taxes makes it clear that even in wartime, some business representatives, such as the Allo chain of stores, do not lose the opportunity to deceive the state.